Choice "A" is correct. The auditor should observe the physical inventory count of goods held in public warehouses if the inventory held therein is significant; otherwise, confirmation of such inventory is sufficient.
Choice "d" is incorrect. Although observation would provide the more effective evidence of existence, it would generally not be the most efficient and should only be done if the inventory is significant.
Choice "b" is incorrect. Calculation is generally not a step performed to determine existence of inventory.
Choice "c" is incorrect. Inspection of inventory, like observation, would provide the more effective evidence of existence; it would generally not be the most efficient method and should only be done if the inventory is significant.